Question

David Company uses the gross method to record sales made on credit. On June 10, 2017, it sold goods worth $250,000 with terms 2/10, n/30 to Charles Inc. On June 19, 2017, David received payment for 1/2 of the amount due from Charles Inc. David’s fiscal year end is on June 30, 2017.

Required: Journal entries for the transcation,

What amount will be reported in the financial statements for the accounts receivable due from Charles Inc.?

Answer 1

Answer:

Account receivable    250,000 debit

       Sales Revenues              250,000 credit

--to record sale to Charles Inc--

cash             245,000 debit

Sales Discount 5,000 debit

   Account Receivable  250,000 credit

--to record payment of Charles Inc within discount period--

Explanation:

The gross method enter the invoices at nominal. Later, if any discount is taken we recognize this discount.

So, the sale is recorded at nominal of 250,000.

Then, at payment we write-off the account receivable, we calculate the discount and aknowledge it on the accounting. and we enter the cash collected.

250,000 x 2% = 5,000 discount

cash collected 250,000 - 5,000 = 245,000

Note: the discount will later be used to determinate the net sales on the income statement.